CCI by its majority order dated February 10, 2016 has initiated
a detailed investigation into the allegedly excessive royalty fee
charged by Monsanto, Inc. (USA) through its subsidiary in India,
Mahyco Monsanto Biotech (India) Ltd. (Mahyco) for licensing of its
patented Bt. Cotton seeds technology to Indian seeds companies.

The investigation has been ordered in pursuance to the reference
made by the Ministry of Agriculture & Farmers Welfare
(MOA&FW), Govt. of India as well as cases filed by several
other seeds producers.

It has been alleged that seed producers entered into sub-license
agreement with Monsanto for procuring its Bt. cotton technology in
consideration of an upfront one time non–refundable fee of
INR 50 lakhs and recurring fee called as 'Trait Value'. The
'Trait Value' is the estimated value for the trait of
insect resistance conferred by the Bt. gene technology. It forms a
significant portion of the Bt. cotton seed prices. It is stated
that the trait value is determined by Monsanto on the basis of
Maximum Retail Price (MRP) of 450 gm. seed packet, in advance for
each crop season.

It is alleged that in the year 2005, the trait value fixed by
Monsanto was INR 1250/- per packet which led to high value of Bt.
cotton seeds manufactured using the said technology i.e. INR 1700/-
– INR 1800/- per packet. This was allegedly very high in
comparison to the price of non-Bt. cotton seeds which were
available for INR 300/- per packet.

It was noted by the CCI that Mahyco, entered into a
"Supplementary and Release of Claims Agreement" with the
Indian companies in 2007 and started charging INR 148.15/- per
packet on an MRP of INR 750/- per packet as the trait value.
Thereafter various State Governments have come up with their own
legislations regarding fixation of MSP and trait values.

The seed companies have made representations to Monsanto for
settlement of payment from 2010 onwards in line with the order of
Bombay High Court dated June 17, 2015 in WP. No. 3255/2015.
However, Monsanto has allegedly invoked arbitration proceedings
before the Hon'ble Bombay High Court seeking interim reliefs
against the seed companies to deposit trait value for the year
2015-16 as estimated by it. The same is pending for
adjudication.

The CCI considered that the relevant market in the present case
should be that of market for 'provision of Bt. cotton
technology'. Bt. cotton has the inherent ability to fight
cotton pests. The said technology is different and more efficient
from traditional methods of pest control used in cultivation of
cotton seeds such as the use of cotton sprays. The conditions of
competition throughout India for the aforesaid products are
homogenous and the relevant geographic market in the present case
should be India.

Out of the 1128 Bt cotton hybrids approved by the Genetic
Engineering Appraisal Committee till May, 2012, 986 hybrids were
incorporated with Bt technology sub-licensed by Monsanto. Therefore
it appears that Monsanto has significant market share in the
upstream relevant market, thus prima-facie enjoying dominant
position in the market.

The CCI took note of the fact that various terms and conditions
in the sub-licensing agreement appear to be stringent and unfair,
particularly in light and would have the effect of denial of market
access to the seed manufacturers, given their dependence on MMBL
for Bt cotton technology. The CCI noted that imposition of such
conditions for notification coupled with stringent termination
conditions not only discourages the sub-licensees from dealing with
the competitors, but also amounts to restriction of development of
alternate Bt cotton technologies. Further, charging of trait value
payable on the basis of MRP of the seed packet apparently has no
economic justification in light of the fact that performance of the
Bt cotton crop depends not only on the BT cotton technology but
also on other factors like genetic composition, climatic conditions
etc. and appears to be unfair.

It is not clear whether the group entities of Monsanto are being
subject to similar pricing and stringent sublicense agreements. Any
discrimination on this account has the potential to distort the
level playing field in the downstream Bt cotton seeds market and
needs to be examined.

The termination conditions are found to be excessively harsh and
do not appear to be reasonable as may be necessary for protecting
any of the IPR rights, as envisaged under Section 3(5) of the Act.
The CCI noted that such agreements discourage and serve as a major
deterrent for the sub licensee from exploring dealing with
competitors. The agreements thus, have the effect of foreclosing
competition in the upstream Bt Technology market which is
characterized by high entry barriers. In view of these aspects, the
agreements entered by MMBL with sub-licensees appear to be causing
appreciable adverse effect on competition in Bt cotton technology
market in India, in terms of Section 3(4) r/w Section 19(3) of the
Act.

Thus, the CCI found a prima-facie case of violation of Section
4(2) and Section 3(4) of the Act. The DG has been directed to
investigate the matter and complete the matter within 60 days from
the date of receipt of this order.

Dissenting Order

In its minority order, Mr M.S. Sahoo, Member of the CCI, made
reference to the sub-licensing agreements entered prior to
enforcement of the Act and held that the same cannot be analysed
for a violation of the Act. As regards sub-licensing agreements of 2015, the minority order
was of the view that the royalty fee charged by Monsanto can be
considered excessive only when it is higher than the competitive
prices, namely, prices in different geographical market for the
same product or prices charged by competitors in the same product
market. Neither of the cases referred to the CCI provides any of
these. The rate of trait fee is not higher than those applicable
prior to the enforcement of the Act. Hence the trait fee applicable
in 2015 cannot be considered excessive for a violation of Section
4(2)(a)(ii) of the Act. Moreover, the Minority order noted , since
the Central Government has decided to fix the prices for the seeds
as well as the Traits under section 3 of the Essential commodities
Act,1955, nothing survives in the reference.

As regards imposition of unfair condition by Monsanto
restricting seed manufacturers from obtaining similar technology
from competitors, the minority order observed that these clauses
require seed manufacturers to notify to Monsanto, if they wish to
develop seeds on a trait available with competitors. These do not
prohibit Informants or restrict their ability to engage with
competitors; these merely require a notification to Monsanto. The
minority order found that there is no merit in warranting an
investigation under Section 26(1) of the Act.

(Source: CCI: Order dated February 10, 2016. For full text
see CCI website)

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